“We’re not resting on our laurels, there’s still more to do,” he said after reporting an after-tax profit of $15.4 million for the Silver Fern Farms Ltd operating business in the year ended December 31, recovering from the tough trading conditions of a year earlier.
Half of that bottom-line figure is for the benefit of shareholders in the Silver Fern Farms Co-operative and the other half benefits new 50%-shareholder Shanghai Maling.
There will be a dividend payout for co-op shareholders and a throughput reward payment for qualifying shareholders.
SFF Ltd’s net profit before abnormal items was $25.6m. The one-off charges totalled $10.2m, mostly the closure costs of the Fairton plant in Ashburton.
“We expect better (this year) as we won’t have those abnormals.”
SFF Ltd had Ebitda earnings of $50.9m, compared to a loss of $7.5m in the previous full year to September 30, 2016. The change of balance date followed the Shanghai Mailing investment.
Annual sales were $2.2 billion, the same as in 2016.
The group reported two earnings figures, for SFF Ltd and for part-owner SFF Co-operative .
The co-op reported a bottom-line loss of $5.6m for the 15 months to December 31, after a pre-abnormals after-tax profit of $7.8m. There were one-off costs for the change in group ownership and structure as well as its share of the Fairton costs.
The SFF Ltd result provided the more meaningful picture, he said.
It was a pleasing improvement after the 2016 year ,which was one of the toughest on record, when both the beef and sheep meat markets turned downwards at different times.
The latest profit was achieved on similar levels of throughput and reflected improved in-market conditions for sheep and venison, a reduction in overhead costs following plant closures and improved efficiencies.
There were no inventory build-ups in the lamb and mutton markets. Product was moving quickly and prices were high, with good margins.
“Beef is okay but there are potential shakes there,” he said.
The prime market was fine, with SFF having very good results, especially in the Reserve market in hotels and restaurants in China.
“They can’t get enough of that,” Hewett said.
There are concerns with the grinding market in the United States, partly because of perceptions over the Mycoplasma bovis disease, given the amount of dairy beef going into that part of the market.
Other countries have the disease, which doesn’t affect meat safety, but it is the first time NZ has been affected and customers are aware of what is going on, he said.
A major gain for SFF Ltd flowed from paying down borrowings after the $260m capital injection by Shanghai Maling. Of that amount, $203m was used for debt reduction and $57m was paid to the co-operative.
For the year, borrowings costs were reduced to $3.3m from $14.8m previously. There were only season borrowings.
SFF Ltd also spent $21m on capital expenditure, the highest level in four years, Hewett said.
SFF Co-op had owned 100% of SFF Ltd for the first two months of the trading year.
At balance date the co-op had no borrowings and total shareholder equity of $271m, including $16.6m in cash. The co-op’s 50% shareholding in SFF Ltd was valued at $268m.
From its after-tax earnings, SFF Ltd will pay a $12m dividend to the two shareholders, $6m each.
The co-op’s share is taxable but Hewett said the tax paid would come back to co-op shareholders as imputation credits on the dividends they will receive.
The co-op will pay $3.2m of the dividend to all shareholders and $900,000 to shareholders meeting the livestock supply criteria.
The main dividend, paid on April 27, will amount to a fully-imputed 2.8c a share and the patronage dividend to qualifying shareholders will be 2.9c a share.
Hewett said the about 60% of livestock processed by SFF Farms Ltd was supplied by co-op shareholders.
A focus for the group is putting in place a shareholder supplier-benefits programme to create more loyalty and encourage non-shareholder suppliers to become shareholders.
The co-op and Shanghai Maling are working their partnership relationships though the market benefits were yet to accrue, Hewett said.
A major trading focus for SFF Ltd is the branded retail offering in Germany being repositioned to improve performance and soon to be offered in the United States.
Both owners are keen to get branded retail into China with Shanghai Maling keen for an early start but the group will get it performing in Germany and the US first, he said.
Branded retail is also performing very well in the domestic market.
The co-op is also focused on reducing its own overhead costs so much of the dividends from SFF Ltd can be passed on to co-op shareholders.
